Tesla's valuation is ridiculous

Tesla's announcement that it will now be providing battery systems to both residents and businesses as a way to maximize efficiencies when utilizing the power grid makes sense. What continues to not make sense is a valuation attributed to Tesla by shareholders thrilled with the visionary leadership of Elon Musk.

That's really the problem with Tesla as an investable asset: Investors are buying Elon Musk but not the fundamentals associated with Tesla.

James Glover II | Reuters

Construction of the Tesla Gigafactory just outside Reno, Nevada, as of February 18, 2015

Tesla makes a revolutionary car and deserves credit for pushing alternative-energy vehicles to the forefront of consumers minds. Following in the footsteps of Tesla are companies such as Audi, BMW, Mercedes Benz, and other auto makers from around the world (including China). While it's fair to say that Tesla is a leader in battery technology, it is equally fair to say that competitors with massively deep pockets are not standing by letting Tesla capture the future of the auto industry.

As for this new home-energy initiative that seeks to provide battery technology to homes and businesses, it's another great idea that fails to provide any rationale for why Tesla's valuation should be so high.

What is the price that investors are willing to pay for innovation when it comes to Tesla stock? Recent analysis suggest that on a sales unit relative to market cap basis, Tesla is valued at somewhere between $500,000 to $1 million for every car they produce. As a comparison, other companies such as BMW are currently valued at 1/10 of this valuation. American auto manufacturers are valued at even lower multiples.

While it is fair to say that Tesla deserves a valuation greater than that of a company like BMW or Mercedes Benz because of its knack for innovation, is it reasonable to assume that the valuation should be 10 times greater? If Tesla is currently valued on a per-car basis at 10 times that of BMW, and they are moving into a business that is traditionally a low-margin space, how is the current stock price reasonable when looking at this company on a fundamental basis?

I agree with Jim Cramer's assessment to "Buy the car not the stock". We see any rally in the stock as an opportunity to exit the position before investors recognize that the fundamentals associated with Tesla simply do not justify its current stock price.